Reference no: EM131043827
Accounting Firm KPMG Fired One of its Partners for Insider Trading
Trading Case Embroils KPMG
1. AICPA Code of Professional Conduct
Go to the AICPA.org Website, locate the AICPA Code of Professional Conduct, and read the following sections:
• ET Section 101 - Independence
• .01 Rule 101 - Independence
• .02 101-1 - Interpretation of Rule 101
2. Case study: KPMG, LLP
KPMG, LLP resigned as the auditor of nutritional-supplement maker Herbalife Ltd. and shoe company Skechers USA Inc. and said it had fired a senior partner in its Los Angeles office over alleged insider-trading tips. The Securities and Exchange Commission is investigating the trading, according to people familiar with those probes. Herbalife shares have been closely watched amid a public battle by two hedge-fund managers, William Ackman and Carl Icahn, over the company's value and practices. KPMG said late Monday that the partner had allegedly provided inside information about its clients to someone who had used that information in stock trading. That person wasn't connected with the battle between Messrs. Ackman and Icahn over Herbalife, said a person familiar with the situation. The recipient of the alleged insider information hasn't been named. KPMG didn't name the partner involved in the allegations, which it described as in charge of its audit practice in its Los Angeles business unit. KPMG partner Scott London headed the audit of Herbalife for the accounting firm. Mr. London didn't immediately respond to requests for comment. Herbalife said KPMG told the company it was resigning as its independent accountant solely because of the impairment of its independence resulting from the former partner's alleged unlawful activities and not for any reason related to Herbalife's financial statements.
KPMG is resigning as auditor of two companies because of concerns that a senior partner has allegedly provided insider-trading tips. In addition, KPMG is withdrawing its audit reports on Herbalife's financial statements for 2010, 2011, and 2012, as well as the report on the effectiveness of internal control over financial reporting for those periods. KPMG is also withdrawing its auditing reports for Sketchers for fiscal years 2011 and 2012. KPMG described the partner that may have provided insider information as "rogue" and someone who violated the firm's rigorous policies and protections. At this point, KPMG has no reason to believe the financial statements contained any errors.
Read the full article and view the associated video using the links below.
Article: https://online.wsj.com/article/SB10001424127887323550604578411812224197182.html#articleTabs%3Darticle
Video: https://online.wsj.com/article/SB10001424127887323550604578411812224197182.html#articleTabs%3Dvideo
Alternative Video link: https://on.wsj.com/17p1Jmd
3. Respond to three or more of the following questions:
a. Do you think the integrity of KPMG auditing services has been damaged by the allegation that one of its senior partners would provide insider trading information?
b. Although Herbalife has become controversial because of questions raised about its business model, this allegation apparently does not relate to that controversy. Why do you think this new allegation has still caused Herbalife shares to fall after the announcement was made?
c. How could a high-integrity accounting firm such as KPMG protect itself against a rogue partner tarnishing the reputation of the firm in the future?
d. How does an auditor's independence provide the basis for issuing an opinion on a company's financial statements?
e. How did Mr. London's actions violate his auditor's independence? What action was KPMG then obliged to take when it learned of Mr. London's actions?
f. Why must Skechers and Herbalife find new auditors and undertake its audits for the last 2 years all over again?
|
What is the projects initial investment outlay
: Leaf It To Us Corporation is considering an expansion project. The necessary equipment could be purchased for $22,287,200 and shipping and installation costs are another $14,220. The project will also require an initial $156,699 investment in net wor..
|
|
What is change in price the bond will experience in dollars
: A 6.05 percent coupon bond with fifteen years left to maturity is priced to offer a 7.1 percent yield to maturity. You believe that in one year, the yield to maturity will be 7.0 percent. What is the change in price the bond will experience in dollar..
|
|
What will be amount to be paid each month during six years
: To finance his development, Innovplastic ltd is negotiating a loan from the bank. The amount needed is 3000 000 €. The bank proposes an interest rate of 6% (insurance included). The loan will be reimbursed by fix payment each month. You are consideri..
|
|
Interest payments are paid semi- annually and par value
: A 7.25% coupon bond with 10 years left to maturity is offered for sale at $1037.20. What yield to maturity is the bond offering? (hint: interest payments are paid semi- annually and par value is $1000) please draw time line and use financial calculat..
|
|
How did mr londons actions violate his auditors independence
: How did Mr. London's actions violate his auditor's independence? What action was KPMG then obliged to take when it learned of Mr. London's actions?
|
|
Is this discount or a premium bond
: What is the price of a 6% coupon bond with 30 years left to maturity and a market interest rate of of 8.25%? is this discount or a premium bond? (hint: interest payments are semi-annual and fair value is $1000) please draw a time line and use a finan..
|
|
Do employees agree to develop job skills because of pay
: Many would argue that if an employee receives a decent salary, he or she will be satisfied and remain with the organization. What are your thoughts on this statement? Does compensation motivate behavior? Do people join a firm because of pay? Do peopl..
|
|
Understanding international compensation begins
: Understanding international compensation begins with the recognition of differences and similarities, along with figuring out how to best manage them. How people get paid around the world depends on variations. There are five contextual factors belie..
|
|
What is meant by ifrs and what is the convergence project
: What is meant by IFRS? What is the convergence project? What are some differences between IFRS and GAAP. Cite a specific area and clearly show how this area of accounting is different.
|